Legal Resource Guide

19 Most homeowners think a default only happens when you fail to make your monthly payments, but there is a laundry list of fairly routine conditions that are included in conventional mortgages that, if broken, can lead to the bank owning your home. "They're not very common reasons that you'll find in power of sales these days, but they're reason enough that you may put your mortgage in jeopardy," says Jeff Levy, a real estate lawyer and managing partner at Toronto-based firm Levy Zavet PC. Levy says many homebuyers are essentially deceiving their lenders by getting a mortgage to purchase a residential property, but after the sale closes they decide to demolish the house and possibly sell the land, or construct a new dwelling. "Tearing down a house is a cause for default," Levy notes. "Essentially what you're doing is converting it from a single-family home to land, so the value of the property, after you tear down the house, may be severely diminished." This also applies to renting out any part of your house, not doing necessary upkeep, or changing the use or zoning of the property. Basically anything that negatively impacts the value of the property can be a cause for default. "Most likely you're signing documents say that," he adds. "You may not know it, because you didn't read all the fine print or your lawyer didn't explain it to you thoroughly, but it's all in there." Apart from not making your payments, the next most common cause of mortgage default in Ontario is failing to pay property taxes or condo fees. Both levies come with significantly higher interest charges than most mortgages, so banks may decide to take over those payments, which could lead to a default. "Almost 99 per cent of all mortgages will have provisions that if they are making these kind of payments on your behalf that it will be added to the balance of your mortgage and you'll be charged the same interest of your mortgage. So you'll be in default in more ways than one," says Levy. Another popular pitfall is not informing your lender when you transfer the title of your mortgage. Family members will often change the name on the official mortgage document as a way of protecting the asset from creditors should the primary owner run into money problems. If you do this without telling your banker, you could find yourself in default. "Most mortgages will have a clause that you can't transfer it without either paying off the mortgage or getting their consent," says Levy. Some banks will give you a three- or four-day window to transfer it back, he adds, while others will just find it too suspicious and call in the loan. A conventional mortgage is a legal contract whereby a lender agrees to loan money to a borrower in exchange for security in the borrower's property. The person getting the loan agrees to adhere to a set of terms and conditions determined by the lender, which can vary according to the type of mortgage being issued: residential, land, commercial, or construction. A default occurs when the borrower fails to keep a promise, or term, outlined in the mortgage document. Sara Beheshti, a real estate lawyer in Toronto, makes a point of telling her clients to be aware of their obligations and to avoid breaking any of the terms of their mortgage. Apart from the conditions noted previously, Beheshti says declaring bankruptcy, lying on your loan application, or taking out a secondary mortgage without consent from the primary lender, may lead to default. While the bank can move to sell the property quickly after a default occurs, Beheshti says sometimes these actions can be avoided by being proactive with your lender and telling them when you might not be able to make a payment, or need to transfer the title. "The first step is to contact your real estate lawyer to find out about your options under the mortgage agreement and the Mortgages Act," she adds. "Under certain circumstances, a borrower may be able to put their mortgage back into good standing." LRG ThaT hoME REno Can CosT You YouR housE waiT,

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